Managing Director Christine Lagarde’s Opening Remarks for the United States 2016 Article IV Press Conference

Welcome to all of you for this briefing on the 2016 United States Article IV Consultation. By now, you will have seen our concluding statement which covers the range of fiscal policies, monetary policy, and the financial sector.

At the outset, I would like to emphasize we think that the U.S. economy is in good shape, despite some setbacks in very recent months. Unemployment is well below 5 percent, in the past year an average of 200,000 new jobs were created every month, and household incomes are rising at a healthy clip.

Having said this, today we will look beyond the important recent achievements and look forward to what will be needed to ensure strong, sustained and balanced growth in the years ahead. I would highlight in particular “four forces” that pose a challenge to future growth.

What are those four forces? Declining labor force participation, falling productivity growth, polarization in the distribution of income and wealth, and high levels of poverty in the U.S. Let me elaborate.

First, labor force participation is declining.
  • The U.S. population is aging and, as a result, a smaller share of the population will be active in the labor force in the coming years.
  • The workforce makes up the backbone of the U.S. economy. Mitigating the effects of population aging on labor supply and demand should therefore be a priority – both here in the U.S. but also in many of the advanced economies.
Second, productivity growth has also declined.
  • It has fallen from 1.7 percent in the decade prior to 2007 to 0.4 percent in the past five years.
  • Much of the gains in average per capita incomes in the 20 years before the financial crisis were from gains in productivity, innovation, and efficiency.
  • The fall in productivity growth seems, at least in part, to be linked to falling dynamism both in the U.S. labor markets and in the formation of new and productive enterprises.

Third, the distribution of income and wealth has steadily become more and more polarized. This is a double edged sword.
  • On the one hand, since 2000 around one quarter of a percent of the population has moved from earning close to the median income to earning 1.5 or more times the median. This is a good thing and has raised living standards for those families.
  • On the other hand, though, more than 3 percent of the population has moved into the group that earns less than half of the median income. For that group, economic insecurity and flat real incomes have resulted in either a stagnation or decline in living standards.
  • Our calculations suggest that since 1999, this polarization of the income distribution has knocked around 3½ percent off of badly needed consumer demand. That is around one year’s consumption over a period of 15 years.
Fourth, the share of the population living in poverty is at very high levels.
  • The latest data shows almost 15 percent of Americans—or 46.7 million people—living in poverty.1 Poverty is even higher for certain minority groups; for single parent (and particularly female-headed) households; for children; and for those with disabilities.
  • With such a large share of the population living below the poverty line, this undoubtedly is an important macroeconomic issue.
  • Not only does poverty create significant social strains, it also eats into labor force participation, and undermines the ability to invest in education and improve health outcomes. By holding back economic and social mobility, it creates an inter-generational persistence of poverty.
All in all, our assessment is that, if left unchecked, these four forces—participation, productivity, polarization, and poverty—will corrode the underpinnings of growth (both potential and actual) and hold back gains in U.S. living standards.

What are the policies needed to counter these “forces”? We have outlined a range of possible options.

Let me highlight a few:
  • Policies need to help lower income households – including through a higher federal minimum wage, more generous earned income tax credit, and upgraded social programs for the nonworking por.
  • There is a need to deepen and improve the provision of reasonable benefits to households to give incentives for work, raise the labor supply, and to support families. This should include paid family leave to care for a child or a parent, childcare assistance, and a better disability insurance program. I would just note that the U.S. is the only country among advanced economies without paid maternity leave at the national level and U.S. female labor force participation is 12 percent lower than that for men. Sensible skills-based immigration reform could also raise the labor supply and boost productivity.
  • Boosting productivity growth is another policy imperative. Productivity gains must inherently be based in the private sector. But public policies can help. A better tax system, efforts toward more trade integration, better infrastructure, a stronger and more vocationally oriented education system would all support higher productivity growth.
None of this is easy. However, there are many good ideas out there as to how best to address these issues. And that provides a strong foundation for progress.

In conclusion, I would like to reiterate that the near-term U.S. growth prospects are good despite the recent temporary setbacks. We think that growth should be 2.2 percent this year and higher still in 2017. And by countering the “four forces” I have just described, I am confident that the U.S. can remain on the frontier of innovation and opportunity.

So with that, I am happy to take your questions. Thank you.

1 The poverty rate is measured via income thresholds adjusted for household size and composition. Thresholds vary from $15.379 for a 2-person household to $24.230 for a 4-person household. Source: Income and Poverty in the United States: 2014, U.S. Census, September 2015.



The next leap

Helicopter money sounds radical. It may not be that much of a departure

WOULD “helicopter money” (the use of newly created money to finance government spending or tax cuts) be a revolutionary break from existing monetary policy? Its advocates argue that the tactic would give the global economy a much-needed boost; its detractors see it as a further step on the path towards fiscal irresponsibility and hyperinflation.

A paper from Toby Nangle of Columbia Threadneedle, a fund-management group, argues that helicopter money is not as radical a leap as you might think. Money is created in two ways. By far the largest proportion is generated by the banking sector when it lends to consumers or businesses. The bank creates a deposit in the name of the borrower which can then be spent.

Mr Nangle refers to this as “inside money”. The other type, which he calls “outside money”, is that created by the government and central bank, including the notes and coins that everyone carries around.

Mr Nangle’s insight involves looking at outside money in a different way. In the conventional view, the government collects taxes from the private sector and uses the proceeds to finance its spending, covering any shortfall by borrowing in the bond markets. Instead, he suggests, look at the process through a monetary lens. The government creates money to pay its bills—public-sector wages, defence equipment and so on. Doing this without limit would quickly undermine confidence in its currency. So governments offset this monetary expansion by “sterilisation”—taking money out of the system through taxes or debt issuance.

Now think about quantitative easing (QE), the creation of new money to buy government bonds. In effect, this is undoing, or reversing, the sterilisation process. The aim was to prevent excessive monetary tightening. In Britain, the chart shows that bank credit (inside money) was shrinking after the financial crisis but, thanks to QE, the Bank of England partially offset this by creating outside money.

In addition, QE in effect reduces government debt held by the private sector, at least for as long as central banks hold on to their respective governments’ bonds and remit the interest payments back to the treasury in question. In accounting terms, one bit of the government owes money to another bit.

On a net basis, the ratio of government debt to GDP in Japan has been falling, not rising.

The only difference between the current situation and the use of helicopter money is that, in theory, central banks plan to unwind their bond purchases in the long term. Government bonds will eventually end up back in the private sector. (Either the central bank will sell the bonds in the market, or it will fail to reinvest when the bonds mature.)

However, it is almost eight years since the failure of Lehman Brothers and no central bank has started to unwind QE. In the circumstances, would the use of helicopter money be that much of a policy shift?

Mr Nangle’s argument is ingenious but raises questions. If helicopter money is so similar to QE, then would it really be effective? After all, despite several rounds of QE, developed economies have not reattained their pre-crisis growth rates. The essential difference, enthusiasts argue, is that the expansion of the money supply would be avowedly permanent, and thus would have a more stimulatory effect.

That difference might well cause helicopter money to be seen in a different light by the markets.

The idea of financing government spending by printing money is regarded with horror by many bond investors because it is a drug to which governments would quickly become addicted. Why bother with the unpopularity of raising taxes or the need to placate bond markets when a friendly central bank can fund all your spending promises? The first government to try it might see considerable downward pressure on its currency. Mild depreciation would be welcome; a rapid plunge would not.

In the end, Mr Nangle comes out against helicopter money because it would be harder to reverse than QE. Instead of selling government bonds to the market, the central bank would have to push up short-term interest rates, perhaps by a lot, since this would probably be its main tool. The impact on small firms and mortgage-holders might be crippling.

But the debate isn’t going to go away. With short- and long-term rates close to historic lows, there isn’t a lot central banks can do on the rates front if more monetary stimulus is needed.

Expect to see lots of sophisticated arguments in favour of helicopter money in order to quell the doubts of the markets.

Four Regional Banks Oversold on Brexit

Citizens Financial, Zions, SVB and Regions Financial endured steep sell-offs, making their valuations more attractive.

Evercore ISI
Not surprisingly, U.S. regional banks are broadly lower on the Brexit news.
That said, select names appear oversold, many of which include banks with higher interest-rate sensitivity. While such concerns are valid, the magnitude of the respective sell-offs appear steep and valuations more attractive. Such names include Citizens Financial Group, Zions Bancorp (down 8%), SVB Financial Group and Regions Financial.
The Brexit vote pressures long-term yields, reaffirming net interest margin (NIM) pressure concerns for regional banks. Average long-term yields have steadily trended lower this quarter implying greater reinvestment risk and greater NIM pressure for banks. For the month of June the average 10-year yield is 1.68%, versus 1.81% in April and May. Quarter-to-date, the average 10-year Treasury yield is 1.77%, below the first-quarter average rate of 1.92%.
While trading has been volatile, we note that the current yield on the 10-year Treasury is 1.57% post-Brexit, significantly below the aforementioned 1.77% average second-quarter yield. Last night, the 10-year Treasury yield hit 1.42%, versus the 1.74% close prior to the Brexit news.
Rate-hike expectations have been pushed out by one year and odds of a cut tick higher. Fed-fund futures currently fully price in a rate hike by January 2018. Just prior to the Brexit vote, futures fully priced in a hike by January 2017. Additionally, our Portfolio Strategist Dennis DeBusschere noted that the odds of a rate cut increased from virtually zero (1.2%) to a still-low but interesting 8.5%. We currently model a 25 basis-points hike in September and another 25 basis-points hike in June 2017.
We note that for our most-asset-sensitive names (SVB Financial, Comerica, Zions, Texas Capital BancShares, Cullen/Frost Bankers, PNC Financial Services Group, KeyCorp, Regions Financial), the elimination of our modeled September hike (but maintaining our June 2017 hike) would reduce our fiscal 2017 earnings-per-share estimates by about 5%.
European exposure is limited for regional banks. We note that select banks have limited direct exposure to Great Britain and/or Europe. Such include Wells Fargo with $27 billion of U.K. exposure (1.4% of assets), including $3 billion of sovereign-debt exposure; Capital One Financial with $3.2 billion in U.K. credit-card receivables (1.4% of loans, about 2% revenue); U.S. Bancorpwith select European exposure, including trust and card businesses (European amount not quantified, but these businesses overall account for about 23% of U.S. Bancorp revenue); U.S. Bancorp also has $1.5 billion in deposits at European banks (0.5% of total deposits), $254 million in German sovereign debt, and $22 million in preferred stock in a European bank; SVB Financial with U.K. loans of $800 million (4.5% of SVB Financial loans); and Discover Financial Services  with limited, but unquantified exposure via the Pulse Network and Diners Club. Additionally, we note many banks have some level of loan exposure to companies that export products.
-- John Pancari
-- Stephen Moss
-- Rahul Patil

Who’s Winning the Middle East’s Cold War?

Robert Harvey
. oil

LONDON – A cold war is taking place in a very hot place. A key component of the sectarian competition between Shia and Sunni Islam in the Middle East is geopolitical, with Iran facing off against Saudi Arabia and its Gulf allies in a struggle for regional dominance.
As with the original Cold War between the Soviet Union and the United States, the conflict does not involve direct military confrontation between the main rivals, at least not yet. It is being fought diplomatically, ideologically, and economically – especially in the oil markets – and through proxy wars, such as the conflicts in Syria and Yemen. There are few problems in the wider Middle East that cannot be traced back to the power rivalry between Saudi Arabia and Iran.
For the moment, the Iranians seem to be riding high. Following Supreme Leader Ayatollah Ali Khamenei’s decision to agree to an international deal limiting Iran’s nuclear capability to peaceful purposes, Western sanctions have been all but removed. Now that it is once again acceptable to do business with Iran, its ailing economy is set for a rebound. Meanwhile, Iran’s creeping de facto annexation of parts of Iraq – astonishingly, with American acceptance – continues because no one except the so-called “Islamic State” has the stomach to stand up to it.
Iran also has an overwhelming manpower advantage, with a population of an estimated 77 million, compared to Saudi Arabia’s 28 million. And while its army is far less well equipped than its rival’s, it is much larger. Moreover, Iran’s main Arab ally, Syrian President Bashar al-Assad, has been given a reprieve as the conflict in his country drags on without conclusion.
This has left the Saudis feeling abandoned and vulnerable. They believe that their great traditional ally, the US, betrayed them by concluding the nuclear deal with Iran. Meanwhile, they fear that the chaos in neighboring Iraq has exposed them to chronic strategic risks.
The Saudis are also recoiling under a barrage of criticism of their Wahhabi brand of Islam, which is widely blamed for incubating extremism and inspiring terrorism. Meanwhile, Saudi Arabia’s human rights record – including the denial of elementary rights for women – is under constant scrutiny.
Against this background, the Kingdom is taking the fight to its enemies. King Salman bin Abdulaziz Al Saud is the country’s above-the-fray ruler, but his son, Prince Mohammad bin Salman Al Saud, currently wields much of the power.
As Minister of Defense, Mohammad has continued the Saudi policy of backing anti-Assad rebels in Syria, in concert with Turkey, while unleashing a war on pro-Iranian tribesmen in Yemen (at an enormous humanitarian cost). He has also backed, if not instigated, an increase in domestic repression, and has launched an economic offensive against Iran – the consequences of which have been seen, until recently, in plunging global oil prices.
In early May, Saudi Arabia’s longstanding oil minister, Ali al-Naimi, was replaced by Khalid al-Falih, an ally of Mohammad’s. The reshuffle is an indication of Mohammad’s determination to use oil prices as a weapon against Iran and its ally, Russia. As the world’s swing producer, with boundless reserves of cheaply extractable oil, Saudi Arabia can flood or throttle the market at will.
And for now, the Saudis are flooding the market. They are seeking to rein in Iran and Russia, both of which need higher oil prices to sustain economic growth. And they are hoping to bankrupt the US shale-oil producers that have reduced America’s dependence on Middle Eastern oil. As Mohammad recently declared, the Kingdom doesn’t care about oil prices; “$30 or $70 – they are all the same to us.” Iran and Russia, by contrast, need a barrel of oil to be worth at least $70.
The US oil industry has proved more adaptable and resilient than expected; cheaper shale fields have opened even as old ones have closed. But the Saudi oil offensive has helped convince Iran and Russia to drag Assad, kicking and screaming, to the negotiating table.
Mohammad’s new economic plan, Vision 2030, unveiled in May, is another front in the economic war, designed to show that Saudi Arabia is immune to the domestic economic pressures afflicting Iran and Russia. The plan calls for economic diversification and envisages the establishment of a huge sovereign wealth fund to cushion the impact of lower oil revenues that the ruling class has traditionally used to purchase social peace.
The Saudi strategy is not without its costs. Gulf remittances of around $10 billion a year to Egypt (itself under increasing economic pressure and a dizzying fall in tourist receipts after recent terrorist attacks) have been scaled back to around $3 billion. And funding to Lebanon has been cut almost completely.
And yet the long-term outcome of this cold war is not hard to predict. Iran and Russia can never be more than foothold powers in the Arab world. The Shia might be able to maintain influence in Iraq, Syria, and Lebanon (through Hezbollah), but they will be unable to compete more broadly. Some 90% of Arabs are Sunni Muslims, and thus potential Saudi allies.
The Saudis can afford to be more mature, and less suspicious than they have been. The US should take steps to reassure them – while never easing up pressure to improve human rights and implement political and economic reforms.

Iran’s Infiltration of Latin America

With U.S. influence waning, Tehran moves in, as a new report on Argentina shows.

By Mary Anastasia O’Grady 

Alberto Nisman, the prosecutor investigating the 1994 bombing of the Argentine-Israeli Mutual Association community center, who died in 2015. Photo: Associated Press

Argentine prosecutor Alberto Nisman died of a single bullet to the head in January 2015, a day before he was scheduled to testify to Argentina’s Congress about an alleged government coverup of the 1994 Iranian terrorist bombing of a Buenos Aires Jewish community center.

There is still no official court ruling on whether he was murdered, but a new investigative report—to be published Tuesday—goes a long way in proving motive.

Joseph Humire, the executive director of the Washington, D.C., based Center for a Secure Free Society, uses thousands of documents and legal wiretaps released to the public to show how the prosecutor’s death eliminated a key stumbling block for Iran and “paved the way for [it] to move into a new phase of its information and intelligence operations in Latin America.” If the theocracy, which is the No. 1 state-sponsor of terrorism in the world, did not murder Nisman, it was the biggest beneficiary of his death.

Nisman was the special prosecutor investigating the terrorist attack on the Jewish community center—known by its Spanish initials as the AMIA. In 2006 he indicted eight former Iranian officials (including former President Ali Rafsanjani) and one Lebanese national. The following year, at Nisman’s behest, Interpol issued “red notices” for the arrest of six of the accused. But Iran took no action.

Using legal wiretaps, Nisman later built a case that President Cristina Kirchner’s government had a covert agreement with Iran to wipe Tehran’s fingerprints off the AMIA attack in exchange for Iranian oil and reopening Iran’s market to Argentine grain and beef.

Nisman had filed a criminal complaint against members of the Kirchner government the week before he died. Killing him did nothing to stop the public from learning of the contents of his report. Yet his death did put the brakes on his plan to bring the Iranian crime into the international arena. It had the potential to undermine the key foreign-policy objectives of Tehran.

Iran’s asymmetric warfare against the West demands commercial engagement because it allows Tehran to deploy political operatives specializing in propaganda, intelligence and terrorism and to finance their activities under the guise of business activity.

In December 2014, Iran’s priority was to end U.N. sanctions in order to facilitate this capability. This meant securing legitimacy via successful negotiations with the five permanent members of the U.N. Security Council plus Germany. Nisman was about to get in the way.

In a safe-deposit box in Buenos Aires some months after Nisman’s death, investigators discovered a document signed by him and dated December 2014. It is an appeal to Argentine authorities to formally request that the U.N. invoke its charter and intervene in the AMIA case.

“Iran’s refusal to extradite its accused, according to Nisman, placed it in noncompliance with its international obligations to support a legal case of international terrorism with another U.N. member,” Mr. Humire writes. Moreover, “Nisman cited Sudan and Libya as precedent for U.N. intervention when state sponsorship of terrorism obstructs justice on an international terrorism case.”

By 2015 the nuclear talks were entering a crucial stage. Whether President Obama would have reconsidered the U.S.’s legitimization of Iran, already under way, is far from certain. The U.S. president doesn’t like to let facts get in the way of his legacy agenda.

But if Nisman had a hearing at the U.N., his extensive investigation could not have been ignored.

According to Mr. Humire, the prosecutor had produced more than “1,500 pages of open source reporting on Iran and Hezbollah” and another 1,500 pages of classified material that is still not public on the AMIA attack. At a minimum it would have challenged Iran’s denials that it supports terrorism.

Mr. Humire argues that the classified material, which is in a 2003 Argentine report, should be declassified so Argentines have the “knowledge necessary to grasp the seriousness and longevity of Iran’s influence in their country.” The rest of the hemisphere also deserves to know about Iran’s designs. As Mr. Humire says: “At a time when U.S. influence has diminished in the region, Latin America is arguably Iran’s top foreign policy priority outside of the Middle East.”

Authoritarian Venezuela, Bolivia and Nicaragua have welcomed the presence and influence of Iran. But others are being surreptitiously invaded, beginning with embassies, cultural centers and mosques.

Peru’s southern rural communities are typical targets for launching networks. Front companies in the beef and oil industries in Brazil and Uruguay are used to provide cover for Iranian operatives. As for Chile, Mr. Humire’s report shows how Iran has infiltrated universities.

It’s not hard to see how the end of sanctions on Iran—triggering the liberation of $150 billion in assets and the reopening of international economic channels—will increase Iran’s penetration of the Western Hemisphere.

2014 Resistance Holding Gold Stocks after Brexit

By: Jordan Roy-Byrne

What a last 24 hours for markets! At one point Gold was up $100/oz, S&P futures were limit down and the British Pound was down over 8%! The volatility has subsided, perhaps temporarily and Gold settled around $1320/oz with Silver settling below key resistance at $18.

The miners predictably gapped up but the strength was sold. As miners remain below 2014 resistance we expect Gold to retest $1300/oz before moving higher.

The chart below plots the weekly candlestick charts of GDXJ (top) and GDX. The miners gained 5% to 6% on the week thanks to Brexit but note that miners sold off today after testing 2014 resistance. GDXJ, which has resistance at $43-$45 reached $43.76 today before declining and GDX, which has resistance at $27-$28, reached $27.71 before declining.

VanEck Vectors Gold Miners and Junior Gold Miners Weekly Charts

We should also note that the miners remain stretched when viewed through the lenses of history. Specifically, Brexit pushed the rebound above the 2008-2009 rebound.

HUI Bull Market Analog

Given the action in the miners today and their historically overbought condition, coupled with Gold selling off from much higher levels, I expect Gold to retest $1300/oz next week. A retest is only that and nothing more. While Gold has technically not formed a reverse head and shoulders bottom, it nevertheless has a potential measured target of $1550/oz. There is some resistance at $1330 and $1380 to $1400. However, there is very little resistance from $1400 to $1550.

Gold Weekly Chart

News events rarely change market trends as the market typically leads news but Brexit could be an indication of a new bullish development for precious metals. That would be the long-term disintegration of Europe which would be very negative for the Euro, the world's second largest currency. This news propelled Gold through $1300 and could be the catalyst to take it towards $1400 over the next few months. Meanwhile, the gold stocks could back and fill just a bit before again testing 2014 resistance levels.

Robots may cut off the path to prosperity in the developing world

Sarah O’Connor

‘Radical inshoring’ trend means western companies are taking back manufacturing

An Adidas prototype sneaker with a 3D printed sole sits on display ahead of a news conference to announce Adidas AG's earnings in Herzogenaurach, Germany, on Thursday, March 3, 2016. German sport-shoe maker Adidas forecast sales and earnings to increase as much as 12 percent this year as consumers spend more ahead of the Euro 2016 soccer tournament. Photographer: Krisztian Bocsi/Bloomberg©Bloomberg
There is a gloomy view you hear in the developed world that goes something like this: first the factories went overseas, now the robots are coming for the jobs that are left. In other words, automation will sweep up the crumbs that globalisation left behind.
But the relationship between globalisation and automation is more interesting than that. Rich countries are beginning to see factories return to their shores — and they have the robots to thank.
Take Adidas. When Herbert Hainer, chief executive, joined the German sportswear company in 1987, factories were beginning to close in Germany and move to China. This month, he announced Adidas would bring some shoe production back to Germany for the first time in three decades thanks to a highly automated factory in Bavaria. “I find it almost uncanny how things have come full circle,” he said.
It is important to keep some perspective. Adidas made 301m shoes last year; the two new factories (the other will be in the US) will produce about 1m. Still, you can see how this trend could take off.

Ditch the complex global supply chains and you save transport and storage costs. You are less polluting and your customers do not have to worry that your products were made in sweatshops. You are also more nimble and responsive to demand.

Spanish retailer Inditex, owner of the Zara chain of stores, owes much of its success to its “nearshoring” strategy: it can adapt to fluctuating fashions because more than 60 per cent of its clothes are made in Spain, Portugal and other nearby countries such as Morocco and Turkey.
Only wardrobe perennials, such as shirts and chinos, are made in low-cost factories in Asia.
Adidas says it is moving closer to a future in which customers can have shoes made on demand, perhaps even by a robot in the corner of the shop .
Tyler Cowen, an economics professor at George Mason University in the US, believes robots and 3D printers could create a world of “radical insourcing” where developed countries no longer need to outsource production to countries where wages are low.

“Why should a wealthy nation buy from a poorer exporter when it can automate and produce similar goods at home without incurring high labour costs?” he asked in a recent paper.
This would not do much for jobs in developed countries, admittedly. The new Adidas factory will have about 160 staff, a fraction of the number required to make the same number of shoes in Asia. But set aside the rich world for a moment. What would “radical insourcing” mean for all the developing countries that saw manufacturing exports as their path to prosperity?

Industrialisation was the west's route to riches. There are strong links between manufacturing jobs and the development of a secure middle class. Exporting manufactured goods powers “catch-up growth” and technological convergence with advanced economies, so the theory goes.

But developing countries are displaying signs of what Harvard professor Dani Rodrik calls “premature deindustrialisation”. While manufacturing jobs peaked at about 25 per cent of the US workforce and 40 per cent of Germany's, they already seem to have peaked in Brazil, India and China at less than 15 per cent.
A world of “radical insourcing” would accelerate this trend, cutting off one well-worn path to development. Poor countries with natural resources could still sell raw materials but economies that rely on commodity exports tend to be highly unequal, unless they have strong democratic institutions.

It is not all gloom. Technology may threaten the old development model but it brings cheaper renewable energy, medicines, internet and smartphones to people in poor countries. Prof Cowen foresees a developing world where phones, software, films, drugs and ideas are plentiful but many basic goods are expensive.

Technology can also create opportunities for developing countries to sell to the world. It is already delivering microfinance loans to entrepreneurs and online education to bright young people. And there is still time to find a new path: all those factory jobs making things for domestic and export markets will not disappear overnight. But nor will they be there forever.
Last month a company called Kuka, which makes industrial robots, became the target of a €4.5bn takeover bid. The owner? German. The bidder? Chinese.

The Psychology of Mortality

'Death Anxiety Makes Us Hate People Who Are Different'

Interview Conducted by Rafaela von Bredow and Johann Grolle

                             Oil painting from Hieronymus Bosch, ca. 1500.

The fear of death is our constant companion. Psychologist Sheldon Solomon has researched how that anxiety affects our lives -- and found that being reminded of death can bring out our worst.

SPIEGEL: Professor Solomon, you have spent almost your entire professional life focusing on the fear of death. Can you remember the first time you ever experienced this fear?

Solomon: I do. I was eight years old and my mother said one night: "Say goodbye to your grandmother because she's not going to be around much longer." And she died the next day of cancer.

Afterwards, I went upstairs and started leafing through my stamp collection. I had a lot of American stamps and they happened to all have dead presidents on them. So there was George Washington. He was a great guy, but he's still dead. Here's Thomas Jefferson. And then, like a psychological lightning bolt, I was like: "Oh, wow. This does not bode well for me." And I had what I, at least in retrospect, remember as a convulsing realization that that would be my inevitable fate.

SPIEGEL: And this shock still affects you 50 years later?

Solomon: Essentially, yes. In the lovely language of the anthropologist Ernest Becker, there's always a rumbling of panic beneath the surface of our consciousness. Our big forebrain gives us the capacity to think abstractly and symbolically and we are smart enough to realize that, like all living things, our lives are of finite duration. That conspires to give rise to potentially paralyzing existential terror.

SPIEGEL: Despite being so concerned, you seem quite happy...

Solomon: Each of us must live with this terror. Becker's claim is that in order to be able to get up in the morning, we embed ourselves in carefully constructed symbolic belief systems that the anthropologists call "culture." Culture gives us each a sense that life has meaning and that we have value -- by offering us assurances of immortality. Either literally, through the heavens, the soul's afterlives or reincarnation, or by the prospect that some vestige of ourselves will persist over time -- from having kids, amassing great fortunes or producing great works of art or science. Yet no culturally constructed symbolic belief system is ever powerful enough to completely eradicate the anxiety that is engendered by the awareness of death.

SPIEGEL: Do you suffer more than others from this existential terror?

Solomon: I don't believe so. It is usually about this time, five to nine years of age or so, when children, in light of their intellectual and emotional maturation, really do become explicitly self-aware to the point where they recognize that their parents are not the omniscient and omnipotent creatures that they thought. That they are not only fallible but also finite. And it's at that point that we switch our psychological allegiance from relying solely on our parents as the basis for psychological security to the culture at large. Rather than just being a good boy or girl, now I want to be a good American, a good German, a good Christian, a good fill-in-the-blank, depending on the cultural construction upon which our identity is ultimately centered.

SPIEGEL: At what point did you decide to focus your career on the fear of death, a rather dark topic, it must be said?

Solomon: Accidentally, as happens in science quite often. What happened, literally, is that I was in the library looking for some books by Freud and I saw a book with a very interesting green dot. Its author was Ernest Becker. In the very first paragraph of the book, Becker writes: I want to figure out what makes people act the way they do. I was like, yeah, me too!

SPIEGEL: Thinkers have been considering the fear of death for centuries.

Solomon: That's correct. It's an idea that goes back to the Old Testament and further, to the ancients. There is no shortage of strands of thought -- artistic, philosophical and theological -- that point to the uniquely human awareness of death as literally the psychodynamic lynchpin toward which all of our behavior is directed. Only psychologists have avoided the subject.

When I first started working on it, the attitude was: This is nonsense.


Solomon: They said: Even if one grants that these are intriguing ideas, they're unscientific and highly speculative.

SPIEGEL: How were you able to convince them of the contrary?

Solomon: I think this is our small contribution. We said, let's try to figure out if the fear of death influences behavior; let's subject it to empirical scrutiny. Again, we were the beneficiaries of an accident of sorts. We had a graduate student who was in a death and dying course and her class was asked to jot down their thoughts about how they might feel and think as they were physically dying. We heard that and decided: That's exactly what we're going to do. Let's ask some people to answer those questions about death and others to answer questions about other negative stuff, like going to the dentist or a car accident. And then we'll see if the members of the two groups behave differently.

SPIEGEL: Did it work?

Solomon: The very first study that we did was with court judges in Arizona, where we had half of the judges think about their own deaths, and then we asked them to set bond for an alleged prostitute, which was the most common crime in Arizona at the time. The average bond for that crime was $50, but when the judges were reminded of their mortality before setting a bond, they set bonds that were nine times higher, at $455.

SPIEGEL: Wow. That much more?

Solomon: It still astonishes me. What was remarkable is that judges are supposedly trained to administer the law in an evenhanded and rational fashion. But when we explained to them what we were doing, they said there's no way that our stupid questionnaire could have had any effect on their judgment. But the results have been replicated many times, both here and in other countries. So there have been many instances where punitive reactions to moral transgressors are magnified by these death reminders.

SPIEGEL: In your book, you go even further. You even believe that Hitler's success can be explained by Germans' fear of death.

Solomon: We must be very cautious; we should be suspicious of any monolithic explanation of anything. In our book, if we have overstated the case, and we surely have, it's because we believe that psychologists have been oblivious to the possibility that the awareness of death has any effect on what people do. Regarding Hitler: There was the defeat in World War I. There were the incredibly humiliating terms imposed upon the Germans. There was the economic instability engendered by the Depression. The combination of those factors made this a ripe substrate for the emergence of a charismatic leader.

SPIEGEL: Economic distress and aggrieved national feelings are different than the fear of death.

Solomon: You need not know that death is on your mind for these concerns to be lurking perpetually.

Let's take another example that we examined closely: Prior to September 11th, President George W. Bush's approval rating was as low as that of few presidents in the history of presidential polling. Soon after, he had the highest approval rating. We thought: Maybe September 11th was like a giant death reminder. The message was: Terrorists are diabolical, but they're also smart. What did they target?

They targeted the Pentagon. They targeted the Twin Towers and possibly the White House.

They targeted the ultimate symbols of American military, economic and political might. And there's good evidence that people in Montana were just as traumatized as people who lived in Manhattan. So it was both a symbolic as well as a literal death reminder.

SPIEGEL: You're probably going to tell us next that Donald Trump is playing on these same fears.

Solomon: That's true. America has been in a persistent state of economic insecurity. And you have lower-middle class, poorly educated white males who are feeling particularly existentially threatened right now by the changing demographics in the US, where they're about to become a minority. And here's Trump, who says: I'm going to make America great again! I'm going to build a big wall! I'm going to keep all of the Muslims out! We did our first study a couple of months ago and found that after being reminded of death, subjects expressed a greater willingness to vote for Trump.

SPIEGEL: You seem to believe that only the dark elements of our cultural identity are intensified by our fear of death. It makes us nationalist, xenophobic and intolerant. But why?

There are many positive elements to culture as well.

Solomon: Perhaps we're just interested in the capacity for tremendous evil that lurks within all of us (laughs). But death reminders magnify any pre-existing beliefs. Conservatives who are reminded of their mortality like liberal people a lot less. Liberals reminded of their mortality actually like conservative people a little bit more, because they become more tolerant and open minded. We also know that, when people are reminded of their mortality, they become more generous and if you ask them to give to charity, they will do so. But it's really important that we get a handle on the malignant manifestations of death denial. Death anxiety makes us hate people who are different. It makes us uncomfortable with our bodies and bodily functions. It turns us into mindless conspicuous consumers of stuff. It makes us go shopping, makes us eat and drink and smoke more. It undermines our physical as well as our psychological well-being.

SPIEGEL: You also argue that the fear of mortality influences our sexual behavior as well. How so?

Solomon: Ernest Becker said sex and death are twins. When I first read that, I was like: Oh man. I was already miserable, but at least there are a few things left that I enjoyed. And then: Sex and death are twins. But Becker was right: Sex as a physical activity reminds us that we're animals. Animals have sex. They die. We have sex. Therefore, we're animals, and we die. The other problem is that, after we reproduce, we've carried our baton around the relay race of life for one lap, and then it's off to the next generation. That too makes us aware of our own mortality.

SPIEGEL: You write that the moment awareness was achieved was a key moment in humanity's development. When did that happen, do you think?

Solomon: Evolutionary arguments are of necessity highly speculative. But our argument is that, by becoming self-aware, humans learned to anticipate the future, to plan and to ask questions about the world. There came a point where consciousness would have become highly problematic in the absence of the coincident development of mechanisms of denial that enabled us to take full advantage of self-awareness without being overwhelmed by death anxiety. And we go back to the cognitive awakening, something like 50,000 years ago. That is concurrent with the first appearances of grave goods, body ornaments and art. All these things are a way to prevent us from being explicitly aware of the tragic elements of the human condition.

SPIEGEL: Art was just a way to deny death?

Solomon: Yes. "Without art, the crudeness of reality would make the world unbearable," Bernhard Shaw said. And Ralph Waldo Emerson wrote: "We fly to Beauty from the terrors of finite existence."

SPIEGEL: Religion offers hope of immortality even more explicitly than does art.

Solomon: Yes, and that is likely the most important function of all religions. I like the idea that religion is an unbelievably creative way for large groups of unrelated people to get along and to foster social cohesion and social coordination. In the beginning was the beat. We were dancing and drumming and singing long before we engaged in discursive language. And yet, the conquistador Juan Ponce de León did not go looking for the Fountain of Social Glue. He went looking for the Fountain of Youth. And the people building the pyramids did not have images of lots of folks yoked arm in arm. No, they're like: I want to live forever.

SPIEGEL: Do our attitudes to death change throughout our lives? What happens, for example, when a doctor diagnoses a deadly disease? Does that intensify one's fear of death?

Solomon: That's a great question, and I don't know. But we want to find the answer and right now we are looking at people who are terminally ill. My wife is a bereavement counselor in the local hospice and she talks about how people react completely differently to terminal diagnoses.

Sometimes they react as we might expect: They get incredibly anxious, fearful and demoralized.

But other times, they literally find life never more meaningful. It's a psychological wake-up call that instigates a process by which they savor every last moment.

SPIEGEL: If we're mortal anyway, why should it matter whether we have 30 years left to live or just one year?

Solomon: Henning Mankell, the Swedish crime writer, wrote captivatingly about exactly that question. He wrote about his reaction to receiving a terminal cancer diagnosis and how, for 10 days, he felt like he was on his way to hell. He describes himself as both paralyzed and terrified, and then he describes in a very poignant, literary and beautiful way how he comes to the realization that you've just proposed, which is, it actually doesn't matter. He was then able to return to life in light of that realization.

SPIEGEL: Has your research helped you come to terms with death?

Solomon: That is a question I am often asked: You've been thinking about death for 40 years.

Has it changed you? Has it alleviated your fear of death? What I say is: sadly, probably not. I actually feel that, to a certain extent, this has been my own death denial mechanism. Then sometimes I think maybe I have made some progress -- that I'm making a couple of baby steps on the road to coming to terms with death.

SPIEGEL: In this process of coming to terms with death, does it help to consider that immortality may even be worse than mortality?

Solomon: You're right! If we were immortal, then life would be meaningless, because nothing would be of consequence. Certainly one way of taking the edge off the prospect of our inevitable demise is to ponder how much more horrendous it would be if we persisted in perpetuity. And yet, if you told me I had X number of days left to live, I would lobby for X plus one.

SPIEGEL: And when the day does come: How do you want to die?

Solomon: I just want to be sitting here with my cheeks stuffed with chocolate, and then just kind of fall asleep.

SPIEGEL: Mr. Solomon, we thank you for this interview.


Transcript of Aspen Ideas Festival: Conversation with Christine Lagarde

SPEAKER: Welcome everybody to the 2016 Aspen Ideas Festival. This is our twelfth ideas festival and I have to say we’re so excited it is ridiculous. I could use some language that some people used this morning in the final closing about how ridiculous it is but I won’t use that. I’m going to be back in a bit but we’ve been planning this event for a year and we want to get going.

So it is my great pleasure to introduce to you a friend, a trustee of the Aspen Institute, the President and CEO of the Woodrow Wilson Center for Scholars, Jane Harman and our very, very honored guest Christine Lagarde, Managing Director of the International Monetary Fund.

MS. HARMAN: Good afternoon everyone. Can we please give a shout out for Kitty Boone. No way with all affection for Walter and the team, no way this could have happened without her magic. I’m delighted to be back and delighted to be part of the first act. The reason this has happened you may know something happened last week. A big vote, it wasn’t in the United States but Christine was actually coming last year and at the last minute there was a family event and she had to cancel. So we decided she would come this year. A year’s lead time, nothing would interfere with Christine and Xavier coming to Aspen, no way. Middle of last week, I get a text. There’s this vote and if it passes I may have to delay or cancel my trip to Aspen. But it probably won’t pass. I remember the day of, most people thought it had tipped and it wouldn’t pass. So at 4 a.m. on Friday the junkie that I am, I turn on my television. At 5 a.m. text from Christine. Cherie, I have two emergency meetings. I have to delay and may have to cancel my visit to Aspen. So I thought she did predict this, how sad. So I cancelled a bunch of things but headed to Aspen anyway. Landed in Aspen to find that she managed to come and has to leave early. So Walter had this brilliant idea that we would hold this event early and the 800 of you who are in the first session get the whole advantage of this and so do I.

So Christine Lagarde is a dearest friend. I’m totally objective when I say she is one of the most admired women on the planet. Do we agree? She was just elected unanimously, get that, to her second five-year term as the [Managing] Director of the IMF, the International Monetary Fund. The first woman to hold that position. She also was the first woman to be Finance Minister of a G7 country. She also was the first woman to chair a major international law firm. Not bad.

So the markets are opening in Asia, I believe I’m correct and there are Brexperts everywhere.

A new word, I read it, I didn’t make it up--who are saying catastrophe, the UK will fall, the EU will fall, the UK has opportunities, the EU has opportunities, these countries will leave so on and so forth. The markets obviously were down on Friday. My first question to you my friend is, is Brexit a catastrophe or an opportunity or both?

MS. LAGARDE: Thank you very much Jane, for this easy one. And thank you very much on behalf of my husband and myself I’d like to really thank the Aspen community. We’ve been here for less than 48 hours and we’ve only met lovely, nice, warm-hearted, welcoming, hospitable people not to mention of course Jane and Bob my friends. But really thank you so much; it feels so good to be here.

Jane, what I thought I would do is just start with a few numbers and put things into perspective a little bit because there is a lot of either short memories or rush to a few conclusions which I think is not necessarily the wisest thing to do at the moment. So looking at numbers a little bit I think we have to keep in mind that the European Union, which started being constructed over 50 years ago, represents roughly 500 million people and is the largest free-market economy in the world. That’s what the UK is considering at the moment. The UK itself is a country with over 60 million people. A GDP per capita at around 45,000. A pretty good track record of economic policy in the last few years with unemployment down at about five percent. Growth ranging from 2.2 to 1.9 and up and public finance that have been largely reestablished and a good direction in terms of debt to GDP. So that’s the economic situation of that country at the moment. I’m saying that with particular purpose which will be as you will understand the questions that I have at the end of my quick look around.

Second set of facts which I think are important is that on Friday as we all sort of woke up to this news which was heartbreaking for those of us who are truly Europeans and certainly it was very much my sentiment as a European. But when we woke up, we realized that first of all the markets had vastly underestimated the outcome and contrary to what I hear all the time from my teams which is essentially markets usually get it pretty right and anticipate reasonably well. On this particular occasion whether it was a book maker or the markets that was not anticipated very much which will explain something that I will say in a minute. That’s point number one.

Point number two it might just be the case that the experts, much criticized including by Justice Minister Gove they just might be right and it is not necessarily going to be the best news in the world.

Third, on that Friday in the course of the day there was no panic, right? And despite the fact that markets had not anticipated that vote and therefore had priced in asset values and other currency values, the fact that the UK would probably remain which led to a nice increase on the markets in the days preceding the referendum but despite that there was no panic. There was a violent, brutal, immediate massive move. The pound went down by 10 percent. It caught up a little bit later on in the day. The valuations went down in many corners and some people lost a lot of money, other people made a lot of money as is often the case when there is massive volatility. But there was not panic, and the central bankers did the job that they were prepared to do just in case which was to put a lot of liquidity on the markets so that there would be shortage of liquidity and no sort of fading away of those liquidities as we saw it on previous occasions particularly in 2008.

So that’s the first take. Central bankers did their job. All groupings, organizations, imminence, policymakers came out publicly along the same lines of trying to reassure that the situation was under control and it was very much under control. We didn’t see those sort of panic moves.

Now having said that, clearly what we are facing in terms of and I’m coming to your question, risk opportunities, or threats opportunities I think needs to be distinguished in terms of short term, longer term. And we have done a lot of forecast analysis as have many other institutions and our conclusions which I have shared with British public opinions not too much success was that the outcome would not be a very happy story for the British people. Both in terms of trade declining, in terms of productivity, probably declining, in terms of income, in terms of inflation and so on and so forth. But very much of that outcome which is not terribly precisely predictable is going to depend on the level of certainty or uncertainty. Predictability or lack of predictability. So I think that at this point in time, policymakers both in the UK in Europe are holding that level of uncertainty in their hands. And how they come out in the next few days is really going to drive the direction in which risk will go. Now we are hearing at the moment, and I’m not inventing it, different statements going a little bit in many directions. There is uncertainty in the political party situation in the UK both in the Labor and in the Conservative party. There is a timetable that has been announced under which this referendum which was legally of an advisory value is leading to the resignation of the Prime Minister which will only be effective at the time when he is actually replaced by his successor who will be appointed by the conservative meeting which will take place probably after the holiday which will be in the course of September. So early October, we will know who is the next leader of the conservative party. In the meantime, Prime Minister Cameron has indicated that he was not going to trigger this famous Article 50 of the European Treaty which provides for the terms under which a withdrawal can be actually notified and organized. But there has been no withdrawal from the European Union except some 30 years ago by Greenland which left from Denmark literally. There is no precedent. There is no real history of how these things happen.

So certainly from our perspective as the IMF, we have very strongly encouraged and will continue to encourage the parties involved to actually proceed with this transition in the most efficient, predictable way in order to reduce the level of uncertainty which will itself determine the level of risk that we are facing. Having said that, in the long term if the decision was maintained and if the leave if effectively followed through by the withdrawal from the United Kingdom there is no doubt that it will have an economic impact on that economy and it will also have an economic impact on growth in the European Union. So policymakers are going to be in high demand to come in the most cohesive, concerted and hopefully positive way in response to the situation.

Final point and I think this is something that does not apply only to the UK and the European Union and the Euro area is why and I think those are the questions that will come to the floor not just in the UK. But why is it that the populous voices sometimes based on so-called truth that they now have to retract. Why is it that those voices carry a lot more and a lot further than the voices of “experts” who are largely unanimous about the outcome and consequences of the decision. That’s a big question to ask. Is it an issue of the economic outcome? Is it an issue of the democratic process, is it an issue of the communication channels? But all those questions I think are on the table and warrant everybody’s attention.

MS. HARMAN: Well there is another dimension to that for those of you and you’re all junkies so you all know this who have studied how the vote went. Millennials by a large amount voted to remain and here is just a summary of a post that many of you probably have seen which has gone viral by somebody named Nicholas. He said the Brexit vote is three tragedies. First the working classes who voted to leave will be hurt the most. Second the younger generation will have never known the full extent of lost opportunities and he says literally freedom of movement was taken away by our parents, uncles and grandparents in a blow to a generation already drowning of the debts of our predecessors. And his third point, which is searing, is that we now live in a post factual democracy and that’s exactly what you said Christine. And he asked when was the last time a prevailing culture of anti-intellectualism led to anything other than bigotry? So after you’ve absorbed that, there’s a lot of buyer’s remorse out there. Three and a half million people have signed a petition to hold another referendum. Given the fact that the formal exit isn’t triggered, do you think there is any chance that “can’t you take a joke” will be operative?

MS. LAGARDE: It is really hard to speculate but the sleepy lawyer wakes up inside myself and –

MS. HARMAN: I’m still asleep, my lawyer.

MS. LAGARDE: But I don’t think that it’s there. Although you could argue that with an advisory capacity and the sort of general uncertainty about the timeline about the triggering point, about the two years’ timeframe within which negotiations must be conducted, there is room for revision. But I just don’t see it personally and I certainly don’t want to be quoted on that because it’s very much up in the air. And it is by the way for the UK to actually decide for itself at the end of the day and that country is the only country that can actually trigger the mechanism.

MS. HARMAN: Right.

MS. LAGARDE: No matter how much the EU leaders insist on it being conducted very diligently it is the UK that can trigger the Article 50.

MS. HARMAN: Let me ask you about leadership in the context of Brexit. You’ve mentioned the need for a steady hand but the World Post which is part of the Huffington Post something that I think is a very good piece of journalism wrote yesterday that there are only two compelling leaders in the world. The Pope and Yo-Yo Ma. And I’m actually very partial to Yo-Yo Ma since he was once the harmonizer artist in residence at the Aspen Institute and a dear friend. But who could lead Europe through this? What steady hand is in Europe? Angela Merkel comes to mind, so do you.

MS. LAGARDE: Well Angela Merkel comes to my mind for sure. But you see I think on this occasion it is going to require concerted efforts on the part of many and it is not going to be and I don’t think that it can ever be just one single leader, takes it all, drives it all. It is too multifaceted to be just the work of one single person. And whoever will be driving that bus will actually need to have all the passengers on board in order to move forward.

Europe is an incredible construction, much criticized. Much too slow, very laborious on occasions but it is also an extraordinary achievement of the immediate aftermath of the second World War where countries had been at each other’s throat and millions of people had died at the hands of each other for centuries. And to actually decide that in the name of peace and prosperity they were going to establish that free market zone where product, service and people can actually move, is something that should not be wasted at all. And it is a resilient construction and a resilient territory which is unfinished and which needs to be completed. It is facing a lot of hardship, let’s face it. If you combine the legacy of the financial crisis which is still out there in some corners you look at the terrorists’ attacks which has been the victim of in the last year and a half to look at the refugee’s inflow which is arriving on the shores of many of the southern countries and moving up all the way to Sweden. If you now take this first ever attempt to withdraw when the whole process was about integration, was about coming together, it is a lot to take for a construction that was not inherited from the Westphalia Treaty but something that was only the second World War construction. But it will take more than one person but it will take certainly somebody who has the ability to bring together people for the moment a very different vested interests.

MS. HARMAN: Well you mentioned terrorism and that’s my last Brexit question. It occurs to me that to quote Gerry Ford we have to be able to walk and chew gum at the same time. And as people are preoccupied with this as everyone should be certainly in Europe and I think no matter what Donald Trump says I think is a matter of great interest for the United States as well. There are preposition foreign fighters in Europe and there is Vladimir Putin up north who has already made excursions into Ukraine and is at least many NATO countries fear what else he might do. While Europe is focused on this would this be unfortunately a good opportunity for some of those folk’s attention is being paid elsewhere to conduct mischief?

MS. LAGARDE: I pray that is not the case, I really do, I really do. There is certainly a great level of integration at the economic level that needs to be perfected, that needs to be completed. I think that in terms of security there has to be further work and more in depth work to be done within the European Union.

MS. HARMAN: Well Christine, turning to a few other subjects and then we’ll get to audience questions. You were recently in Japan for a meeting of the G7. Every time I check because I do get these texts from you and invite you to dinner you’re in Kazakhstan or you’re going somewhere but you have been focusing, I know, in addition to Kazakhstan literally on Ukraine, Iraq, Egypt. Endemic corruption is a huge concern of yours. Just a few words about other things you are doing or you will be doing while you are also in this position managing or helping to manage the Brexit crisis.

MS. LAGARDE: Thank you to asking me that question because I have to look at the future and look at it as positively as I can. In my first few years, I tried to shift a little bit together with the management team, the IMF in the direction that was a bit unconventional and not especially orthodox. We have really focused on some alternative topics that are micro critical all the same but that include the likes of climate change, what do we do about it, empowerment of women, what do we do about it, financial inclusion, what do we do about it, excessive inequality, what impact does it have on growth, and those are areas that I think actually matter enormously. Not only for macroeconomic purposes, not only to have a good and solid set of fiscal principles but also because they actually bring the level of hopefully more security, more inclusion, less inequality that actually repair or support and strengthen the chemistry of societies. This is particularly relevant at this point in time. Because I think that some of the answers, some of the analysis in relation to these topics are critical for people. I don’t think that we have communicated well enough or clearly enough leaving aside the jargon that economists and other use. But I think that I would like to continue to push the institution in that direction.

Our focus is economy. Our focus is stability and I think those are the basic principles upon which societies can actually prosper and be developed. But it can only be done on solid pillars and with the principle of inclusion being first and foremost. And it is with that concern in mind that I believe that the work we have begun doing on corruption is very important. How much corruption would present in the world, anywhere between $1.5 and 2 trillion. How many countries are concerned, many. And not just the odd country down south in this sort of low income development country. Who are the victims? Generally the most exposed people. Can it be fixed? Yes. Will it take time? Yes. Will it require cohesion and leadership? Yes, of course. Will the transition from an economic point of view need careful analysis and policy advice? Absolutely. You don’t go from a nicely oiled system that is built on bribes and rigged procurement contracts to something that is transparent and where people are accountable without a degree of transition. So those are some of the areas that I would like to continue to push along with exceptional quality of research and service to the membership.

MS. HARMAN: My final question is growing up in France where you a synchronized swimmer and going to the United States for a year I think at Holton Arms and being an intern for then Congressman Bill Cohen. Then this school and teaching and this flaunted law career, did you ever imagine that you would be here now in your second term as the Director of the IMF?

MS. LAGARDE: No, no, absolutely not nor did I plan for that actually ever but no,

MS. HARMAN: Well all I can say is aren’t we glad she’s there? So questions and one I would like to call on Kitty Boone whether she wants to be called or not I hope she’s here. She’s there because Kitty has come up with I think a great idea about Greece and I think you ought to put it to Christine Lagarde.

MS. LAGARDE: I’ll take any of those.

MS. BOONE: I’m now mortified. Okay here is my idea but I don’t know how to turn it into a question. Maybe you can say does this make sense, is it possible. The Greek economy is a disaster.

The debt now is a huge question. Rio for the Olympic Games is a disaster. The IOC, the way they make decisions is really complicated. Could we please permanently install the Olympic Games in their home in Athens and give economy and tourism and strength and have one place that’s environmentally safe. You don’t have to build stadiums that have dust weeds right after the day and help Greece and help the world find a place in Europe that is a legitimate home for the Olympic Games. That’s my question.

MS. LAGARDE: I think it is a great out of the box idea. Thank you Kitty, thank you. To the extent that it’s going to create demand which is what this economy absolutely needs it would be great. How you combine the sort of single location with the multilateral, multicounty extraordinary sort of appeal that the Olympics can have too many countries around the world is something that needs to be thought through. How you could have a good governing body that would actually supervise, make sure that there is transparency, there is accountability, there is no funny business as has occurred in the past in some places. But is a very interesting idea and you’re right. The marathon was run the first time even in Greece and the Olympic is only called the Olympic because of Mount Olympus which is actually sitting in Greece and has hosted so many fantastic athletes which was part of the healthy principles that the Greek’s very much had.

MS. HARMAN: So Kitty has the first big idea of the afternoon. Other questions?

MR. ABERNATHY: Bob Abernathy. Thank you for being here with us. You said a minute ago that much work needs to be done in security in Europe. What would you set for an agenda for the meeting in Warsaw next month?

MS. LAGARDE: I’m totally out of my depth on that one. So I don’t pretend to have any recommendations or any lessons to those who are in the know. I was in November in Paris at the time of the attack on Bataclan. I walked the streets of Washington just recently and all I can tell is that it is going to require concerted efforts at all levels of organizations, societies and not just at the police and intelligence levels. I think people have to be adopting a different view about security themselves.

MS. HARMAN: The meeting in Warsaw is a meeting of NATO members for those who don’t know. Questions, over there on the aisle.

QUESTIONER: I am a Pearson Scholar. I am originally from Nigeria. In January you visited my home country and you said you advised the Nigerian Government to act with resolve, build resilience and exercise restraint. These are your three words. And with Britain leaving the EU as an emerging economy that solely depends on oil and most of our stock is tied with pounds, tied with dollars what advice do you have on an emerging economy such as Nigeria and other African countries who are battling with climate change, battling with migration and other things, thank you.

MS. LAGARDE: Well first of all what I can tell you is that I was very, very pleased to see the exchange rate new policy that has been decided by the Central Bank of Nigeria. And I’m delighted that President Buhari has agreed to that change as being part of the overall Nigerian policy. I think it’s a move in the right direction. Clearly your country is a massive producer of oil. It is not the only country to some of countries that are visited earlier as you mentioned Jane, it is a country that actually has other sources of growth that is far more diversified but where resources are predominantly particularly the revenue for the state of Nigeria from oil. The fact that it is heading in the more direction of a more flexible exchange rate I think is so wise and so much better than what there was before. So I think on that front the country is heading in the right direction. Diversification of sources of growth is a critical one and I think the fight against corruption is something that President Buhari himself who was present at the London Summit against corruption has devoted his energy and efforts towards and it needs to be continued, we need to support him in helping along the way. But fighting against corruption, diversifying the economy, making sure that there is growth in the country in order to create jobs for the Nigerian population particularly the young people on the basis of a monetary policy and an exchange rate that is more variable then it was before. I think hopefully will position the country in a much better shape for the future. It is the largest economy and certainly the largest population in Africa. The rebasing of the economy is certainly demonstrated. I hope it heads in the right direction.

MS. HARMAN: Over here, let’s see Elliott in the front row.

MR. GERSON: This is Elliot Gerson of Aspen Institute. I’d like to return to Nicholas, the young man who wrote the letter in the Financial Times that Jane referenced that went viral. About three quarters of Britain’s under 25 voted to remain and they have the most at stake. Almost as many voted the other way who are retired and who have the least at stake. What specific message do you have for Nicholas and his young contemporaries who seem to be now in a state of national depression?

MS. LAGARDE: I think many of them went to vote but many of them actually regret today that they have not for some reason. Clearly the future of their country is going to belong to them more than anybody else and I hope that they can move in a positive direction. They can be hopefully guided and I say that with trepidation because I think that we are seeing massive changes and the assumption that somebody is going to guide them is maybe very full of vanity in a way. I think there is very much a desire of I want to take my destiny in my own hands. I want to be able to communicate and I don’t really understand what those intermediaries however democratically elected and representative they’re supposed to be are going to do with my future. So I think we need to ask the right questions, try to find together the right answers. I think for the next couple of years it is going to be a difficult moment. That’s the time it will take to conduct negotiations and see under what terms the country withdraws. If it does as presumably it will and whether it will take the direction of Norway which as you know has an economic arrangement which authorizes them to actually transfer goods and services without restrictions but also requires that they pay their contribution to the European Union and that they open their space to movement of people. That would be probably for those young people the most comforting outcome. I’m not sure that it will be perfectly satisfactory to those others at the other end of the age spectrum because you end up as actually the authorities of Norway was telling me 10 days ago with paying the bill, not having a say on the regulations and forcing the regulations and opening new territories. But a Norway-like arrangement would be probably the best outcome both in economic terms and in response to the concern of Nicholas and all his friends.

MS. HARMAN: Anybody in the back, then in the front right here. Just wait for the mic and identify yourself please.

MS. LAZARE: Nancy Lazare. What policy advice would you give the leadership of Italy and Spain and maybe even France to reduce the odds of a referendum vote in those countries?

MS. LAGARDE: I would stick to (inaudible) things and I would say put in place the policies that will actually lift economy that will create demand, that will generate growth, that will create jobs and that will bring a bit of an uplifting sentiment around the country. I’m saying that I’m sticking to (inaudible) because I think that is a really important message. What have we had so far. We’ve had terrific monetary policy authorities. The central banks have carried the burden very much on their back with little support on the part of fiscal and the part of structural reforms. I think if anything that should be a strong wakeup call to those authorities to actually drive forward that agenda that we have called the three pronged approach. Structural reforms, fiscal space used please and whatever fiscal policy you have in place make sure that they’re growth friendly and have the monetary policy in the background to continue to help and support. And that is perfectly legitimate but it cannot be on its own. So that would be my strong recommendations. Turn your country and your economy towards positive, towards demand, towards growth and make sure that instead of having 10 point something unemployment growth, unemployment rates in those territories you move the needle in the right direction, you create hope, you generate confidence.

MS. HARMAN: I can’t underscore positive and hope. Just imagine if the REMAIN campaign had been based on positive and hope what the result might have been. Last question, way in the back over there.

QUESTIONER: I am a British citizen both heartbroken and in mourning.

MS. HARMAN: Did you vote?

QUESTIONER: I am not allowed to vote because I’ve lived in America for over 14 years and they take away your vote when you’ve been expat for 14 years in the UK though I would have clearly voted to remain. My question is assuming the British government does withdraw from Europe do you expect the European Union to be very harsh not to say punishing in their negotiations as a way to dissuading other people in the domino effect that we’ve been hearing about or would you expect any form of compassion?

MS. LAGARDE: I personally don’t believe in the virtue of punishment in many instances. I think encouraging, supporting people to head in the right direction is probably a lot better. Equally I recognize the dilemma that the European leadership has being overly warmhearted in those negotiations and discussion is certainly not going to help in to deal with the risk that is out there, not only of reduced growth but of potential fragmentation that would result from a contagion effect. So how they find equilibrium between being rigorous and being fair is something that I hope is best exemplified at this point in time by Chancellor Merkel who has gone on saying there is no need to be nasty with the British. I’m almost hesitant when I say the British because when I see what Nicola Sturgeon from Scotland is saying I’m concerned that we are not even talking about the British. We’re talking about very much the English, the Welsh. Ireland is going to be also a big question mark going forward. But I hope that this equilibrium point is going to be sensible enough to not harm unnecessarily and try to get a revenge against the English and others but also is not going to be encouraging for others to look for similar situations.

MS. HARMAN: So on that note this is Christine and Xavier’s first visit to Aspen. Should we invite them back?

 * * * * *